Watts Health Foundation Inc., a nonprofit health plan that covers about 90,000 elderly and low-income Southern California residents, has filed for bankruptcy protection owing an estimated $50 million or more to creditors, including doctors and hospitals.
It is the third time in three decades that the organization, which provides medical and dental care through its UHP Healthcare HMO, has been in financial turmoil. UHP filed for bankruptcy protection in 1987, emerging two years later, only to be seized by state regulators in 2001.
The health maintenance organization emerged anew from state conservatorship about two years ago. It attracted regulators' attention again in late 2004 for rapidly burning through cash reserves.
The latest bankruptcy petition, filed Tuesday, nevertheless caught both hospitals and regulators by surprise. Watts Health failed to give the state 10 days' notice before filing the petition as required by law, said Cindy Ehnes, director of the state Department of Managed Health Care.
Had it done so, the foundation's management might have lost control of the organization. "We might have expressed concerns about the quality of the management and put in place a conservator -- and they forestalled that" by filing for bankruptcy protection without warning, Ehnes said.
She said the agency would nonetheless seek an active role in bankruptcy proceedings.
"Our concern is to protect the plan and to protect patients and to protect those who provide services to patients," Ehnes said.
Watts Health executives declined to say why they failed to notify the state but they said they intended to work with regulators.
Gary Klausner, a Century City bankruptcy lawyer representing Watts Health, said the HMO would use bankruptcy protections to reorganize and conduct "business as usual" in the meantime, keeping its 300 employees and UHP Chief Executive Curtis Owens.
"We want our members to understand that they will still get coverage," Klausner said. "Our management is in place, and we have sufficient cash reserves. We are working with our creditors to develop a business plan and hope to emerge from this within a few months."
But state regulators, who have been watching the HMO's finances deteriorate for several months, were less sanguine.
"We are very concerned about anything that has the potential to destabilize hospital or medical group finances in the area," Ehnes said.
